Hasbro(US:HAS)2023-02-21 16:00Financial Performance - Net revenues for 2022 were $5,856.7 million, a decrease of 9% from $6,420.4 million in 2021, impacted by an unfavorable foreign currency translation of $166.3 million [229]. - Operating profit in 2022 was $407.7 million, or 7.0% of net revenues, down from $763.3 million, or 11.9% of net revenues in 2021 [229]. - Net earnings attributable to Hasbro, Inc. declined to $203.5 million, or $1.46 per diluted share, compared to $428.7 million, or $3.10 per diluted share in 2021 [229]. - The Consumer Products segment saw a 10% decrease in net revenues to $3,572.5 million, while the Wizards of the Coast and Digital Gaming segment increased by 3% to $1,325.1 million [229]. - The Entertainment segment net revenues decreased by 17% to $959.1 million in 2022 [229]. - Hasbro's Franchise Brands net revenues decreased by 4% to $2,830.6 million in 2022 [243]. - Net revenues for Hasbro declined 10% in 2022, totaling $3,572.5 million compared to $3,981.6 million in 2021 [264]. - Franchise Brands portfolio net revenues decreased 4% in 2022, with MAGIC: THE GATHERING becoming the Company's first billion-dollar brand [245]. - Partner Brands portfolio net revenues declined 9% in 2022, driven by lower sales of DISNEY FROZEN and DISNEY PRINCESS products [246]. - Hasbro Gaming portfolio net revenues decreased 13% in 2022, primarily due to lower revenues from Dungeons & Dragons: Dark Alliance [248]. - Total gaming category net revenues, including MAGIC: THE GATHERING and MONOPOLY, totaled $1,997.5 million in 2022, a decrease of 5% from $2,098.9 million in 2021 [249]. - Emerging Brands portfolio net revenues declined 12% in 2022, primarily driven by lower sales of FURREAL FRIENDS and PJ MASKS products [250]. - TV/Film/Entertainment portfolio net revenues declined 17% in 2022, impacted by the sale of eOne Music and lower film deliveries [251]. Operational Changes - The company announced an Operational Excellence program aimed at delivering $250-$300 million in annualized run-rate cost savings by year-end 2025 [237]. - In 2022, Hasbro incurred net charges of $253.0 million related to its strategic review and Blueprint 2.0 strategy shift [237]. - The company plans to focus on fewer, bigger brands as part of its Blueprint 2.0 strategy, leading to the out-licensing of certain non-core brands [223]. - The Consumer Products segment faced challenges from higher sales allowances and obsolescence charges, despite benefits from the expiration of certain licensing agreements [284]. - The Wizards of the Coast segment's operating profit margin decrease was attributed to higher inventory and product development costs, partially offset by lower administrative expenses [286]. - The Entertainment segment's improved results were influenced by the non-cash impairment charge in 2021 and lower royalty expenses in 2022 [289]. Cost and Expenses - Operating expenses as a percentage of net revenues in 2022 included cost of sales at 32.6%, program cost amortization at 9.5%, and royalties at 8.4% [297]. - Cost of sales decreased by 1% to $1,911.8 million, representing 32.6% of net revenues in 2022, driven by lower sales volumes in the Consumer Products segment [302]. - Program cost amortization totaled $555.5 million, or 9.5% of net revenues in 2022, down from $628.6 million in 2021 [304]. - Royalty expenses decreased to $493.0 million, or 8.4% of net revenues in 2022, compared to $620.4 million, or 9.7% in 2021 [306]. - Advertising expenses decreased to $387.3 million, or 6.6% of net revenues in 2022, down from $506.6 million, or 7.9% in 2021 [311]. - Selling, distribution, and administration expenses increased to $1,666.1 million, or 28.4% of net revenues in 2022, from $1,432.7 million, or 22.3% in 2021 [317]. Cash Flow and Financing - Net cash provided by operating activities was $372.9 million in 2022, down from $817.9 million in 2021, attributed to lower earnings and higher working capital requirements [342]. - Net cash utilized for investing activities was $313.0 million in 2022, compared to net cash provided of $242.0 million in 2021, reflecting a cash payment of $146.3 million for the D&D Beyond Acquisition [343]. - Net cash utilized for financing activities was $(553.3) million in 2022, compared to $(1,459.8) million in 2021, indicating a significant reduction in financing outflows [344]. - Dividends paid increased to $385.3 million in 2022 from $374.5 million in 2021, reflecting a quarterly dividend rate increase from $0.68 to $0.70 per share [348]. - The Company had no outstanding borrowings under its commercial paper program as of December 25, 2022, with approximately $1.5 billion available under the committed line [351]. - The Company fully repaid the $400.0 million principal of the Three-Year Tranche term loan by December 25, 2022, and repaid $87.5 million of the Five-Year Tranche [353]. - The Company issued an aggregate of $2.4 billion in senior unsecured debt securities in November 2019, with various maturities and fixed interest rates [355]. - The Company was in compliance with all financial covenants as of December 25, 2022, under its revolving credit agreement [352]. - The Company has a total long-term debt of $3.8 billion due between 2024 and 2044, with $113.2 million classified as current debt as of December 25, 2022 [358]. Impairments and Taxation - In 2022, the company incurred asset impairments and charges totaling $300.3 million, primarily related to the Power Rangers intangible asset [300]. - The Company recorded a pre-tax non-cash goodwill impairment charge of $11.8 million in Q3 2022 due to the exit from certain non-core businesses within the Entertainment segment [369]. - A partial impairment charge of $281.0 million was recorded in Q4 2022 related to the definite-lived Power Rangers intangible asset due to project cancellations [378]. - The Company recorded an impairment loss of $74.1 million related to its investment in the Discovery Family Channel due to a lower fair value compared to its carrying value [387]. - The effective income tax rate decreased to 22.4% in 2022 from 25.2% in 2021 and 30.0% in 2020, influenced by various discrete items and foreign tax rates [324]. - The company recorded a total liability of $137.7 million related to the Tax Cuts and Jobs Act, with $34.4 million due in 2023 [332]. - The company plans to pay the transition tax related to the Tax Act in annual installments through 2025, totaling $137.7 million [332]. - The Company has a liability of $69.1 million for potential tax, interest, and penalties for uncertain tax positions as of December 25, 2022 [392]. Inventory and Assets - Inventories increased by 23% to $676.8 million in 2022, reflecting accelerated purchases to mitigate supply chain challenges [335]. - Other assets rose by 23% to $1,589.3 million in 2022, primarily due to higher deferred tax balances and investments in film and television productions [338]. - The Company's inventory levels increased by 23% in 2022 compared to 2021, reflecting global supply chain disruptions [398]. Market and Customer Concentration - Revenues from the Company's top five retail customers accounted for approximately 35% of its consolidated net revenues in 2022 [396]. - Approximately 57% of the Company's full year net revenues were recognized in the second half of 2022, indicating a concentration of sales during this period [397]. Strategic Outlook - The Company expects to fund its working capital needs in 2023 primarily through cash flows from operations and production financing [330]. - The Company expects to continue monitoring the impact of inflation on its operations and may need to adjust prices further [401]. - The Company believes cash from operations and its committed line of credit will allow it to meet obligations over the next twelve months [361].